The double-digit declines faced by the boating industry during the most recent recession were severe, but historically speaking, they shouldn’t have come as a total shock. That’s because history shows that when the larger economy takes a downturn, the boating industry faces a drop-off that’s many times worse.
The good news? History also shows that following an economic rebound, the boating industry experiences growth many times greater than that of the overall economy. To provide some perspective on the 2007-2009 recession, Boating Industry spoke to Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif., about how the previous two economic downturns compare to today’s situation.
The first (from 1990-1991) followed the Black Monday stock collapse of 1987, the Savings and Loan crisis of the late ’80s, and beginning of the Gulf War and the resulting 1990 spike in oil prices. After a decade of economic expansion, the second (in 2001) followed the dot-com bust and was worsened by the September 11 terrorist attacks.
As in all recessions, the three examples being looked at are defined in terms of declines in real gross domestic product. Real GDP declined and then went negative in 1990-1991 as well as in 2007-2009. And in 2001, the number remained positive for the year, but there were negative quarters within that period.
During a recession, consumers naturally respond by reducing spending. In ’90-’91, growth in consumer spending came close to zero, and in 2001 growth slowed significantly. That was bad news for the boating business because Adibi says consumer spending is what really drives sales of items like boats. That is borne out by boat sales declines in 1990 and 1991, but 2001 appears to buck the trend. However, Adibi says that year, where sales were strong despite the recession, is an anomaly that can be explained.
“The stock market was doing so well in 1999 and 2000, and then the housing market started performing very well,” Adibi said. “People were benefiting from high stock valuation and making money in 1999 and 2000, and you can see those double-digit increases.”
In 2001, boat sales increased significantly because we didn’t see the effect of the recession until 2002-’03, with the housing market making up for some of the losses in the stock market.
In the most recent recession, there was no such buffer. In addition, unlike in the previous two recessions, in 2008-’09 spending growth actually became negative, and that resulted in extremely steep declines in boat sales.
Adibi says luxury purchases all perform similarly during a recession.
“Whenever we go into a recession, people cut back in a certain consumption pattern,” Adibi said. “They don’t cut back on food as much. They don’t cut back on pharmaceutical products because those are all necessary. But there are some luxury items — your discretionary spending — and people really cut back on those. Taking trips, going to eat in restaurants, buying fancy cars or boats or motorcycles.”
The bottom line
All of this adds up to a simple fact for the marine industry: During recessionary cycles, the decline in boat sales is significantly more than the decline in consumer spending. In 2009, GDP went down 2.5 percent, consumer spending went down 0.6 percent, but boat sales dropped off almost 20 percent.
However, when the country comes out of a recession, industries that rely on discretionary spending perform better than the overall economy, Adibi says. That’s because the people who typically buy items such as boats are usually in a position to benefit more from economic growth than the average person.
“Discretionary spending responds much more both ways — on the downside and on the upside,” Adibi said.
To see boat sales really rebound, Adibi says we need to see several years of sustained, strong economic growth driven by increases in real GDP. As an example of a leading indicator, he points to 1997-2000, when real GDP increased by more than 4 percent each year. Spurred by the economic expansion, boat sales skyrocketed.
“When we see this kind of economic growth, we will see double-digit increases [in sales of luxury items] or more,” Adibi said.
Unfortunately, Adibi isn’t predicting that kind of growth this year. He doesn’t think there will be a double-dip recession, as some economists do, but he thinks growth will continue at an anemic rate — 2.5 percent to 3 percent per year.
And in years with 2.5 percent to 3 percent per year. growth, he says you can go back and see that those weren’t the years with large increases in sales.